A helicopter crashed into a crane on top of a residential block in central London, killing two people and injuring several more. Photograph: Neil Hall/Reuters

Shortly before 8am, with the temperature still three degrees below zero and the sun not yet above the horizon, Ray Watts and his friend Paul Robinson parked their vans outside the Vauxhall Tower development at St George Wharf, just south of the Thames in London, ready to get on with the next job of the day.

Watts, 45, a driver for Sheffield Insulation, was delivering panels to the luxury development and had stepped into the building to chat with the security guard, whom he had not seen for a couple of weeks. Robinson, 42, who had come to pick up waste material from the site, was still in his van.

Suddenly, from high above their heads, there was an almighty bang and then another as a helicopter careered to the ground and blew up in an enormous fireball, while debris rained down around them.

"I just ran," said Watts. "I was scared and legged it. I didn't know which way to run because there were bits everywhere. I ran towards [Vauxhall] station and there were still bits raining down. There were lots of workers, 20, 25 people, waiting to get on to the site through security. They all ran in different directions. Everyone was shouting: 'What's going on?' "

Robinson, from Barking, east London, was sitting in the driver's seat of his vehicle. When he felt a violent jolt, he thought his friend Watts had shunted him from behind. In fact, the noise came from twisted pieces of metal falling from the sky on to his vehicle.

"I jumped out of the lorry and ran like hell," he said. "The boom hit the ground, I looked round and I saw the ground was on fire and somebody said it was a helicopter. I felt very scared, I thought: Oh my God, I am going to die here."

Michael Krumstets, who lives in the Vauxhall area, was walking to work with his flatmate when they saw the helicopter strike the crane. "Then the helicopter started spinning out of control and incredibly towards us – and I mean directly towards us".

They managed to sprint to the side of the road before the aircraft struck the ground "just feet away from us". Krumstets's flatmate fell over and had to be helped to his feet.

"You see a helicopter hurtling out the sky towards you – it's the last thing you expect on your way to work. And then it exploded.

"You see things like this in films of helicopters or planes crashing, but when it's actually happening to you, it's coming towards you. We were so lucky, we were just so lucky.

"We ran to the side of the road and we just managed to get away – and then it hit the building on the side of the road and then it exploded. By that point, we were just shaken, you couldn't move - what could you do?"

The accident left two people dead – the pilot, Peter Barnes, and Matthew Wood, 39, from Sutton, south London, who was killed on the ground. Cycling to offices, waiting at bus stops or peering out of bedroom windows, the residents and commuters of Vauxhall repeated similar, shocked tales of a scene more evocative of a disaster movie or terrorist attack than the humdrum daily banalities of a still winter morning.

Sharon Moore was taking her eight-year-old daughter Tiah to school for breakfast club and had paused outside their home on the Wyvil estate, 50 metres from the crash scene, to speak to a neighbour. Something attracted their attention to the sky, where a thick low cloud still covered the tops of the highest buildings.

"Have you ever seen a car and it's swerving because it doesn't know which way to turn and it panics? That's exactly what it looked like."

She said the top of the tower, 51 storeys above street level, was obscured in fog, so that they couldn't see any light at the top. The helicopter was moving as if it couldn't see the way it was supposed to be going, she said.

"It tried to turn but it didn't make it and it ripped the scaffolding [crane] in half like a piece of paper. But you could see the helicopter was distressed before it got to the building. It was like it was blinded. And it sounded like that sound when someone drags their nails down a blackboard – but it was even worse. It was like a screeching ... it was slicing into the metal of the tower."

Twenty-five minutes earlier and 18 and a half miles away, 50-year-old Barnes was buckling into the seat of his Agusta A109E helicopter at Redhill aerodrome, south of the M25 in Surrey, and was preparing to fly across the capital to the airground at Elstree to collect a passenger for a chartered flight just after 8am.

What happened next is now the subject of an urgent investigation by the Air Accidents Investigation Branch (AAIB), as the prime minister and mayor of London vowed that lessons would be learned from the crash. Certainly, it should have been a routine flight for a pilot who was described by friends and colleagues as one of the most experienced in the business.

The father of two had been flying for 25 years and gained more than 10,500 hours of air experience, flying movie stars and dignitaries around the capital, providing "eye in the sky" services for broadcasters and working on countless TV and film sets.

Even on a freezing morning, even with cloud cover so dense that London City airport, a few miles to the east, was reporting a cloud base of just 30 metres (100ft) at the time of the impact, even in busy, built-up central London, Barnes should have been able to handle the flight, according to friends.

"Pete is used to flying and landing wherever he wants to," said Ian Williamson, editor of Helicopter Monthly magazine, who had met the pilot often. "The guy is so experienced he was used in most film shoots, using things like temporary landing sites on the top of buildings."

Williamson said he had found it hard to believe when he learned the crash had involved such an experienced pilot.

One question air investigators will be keen to establish is precisely when Barnes decided not to try to proceed to Elstree – and why.

The north London airfield had been experiencing problems with the weather but had not been forced to close, said a spokesman, declining to say more about any contact with Barnes's flight.

A spokesman for National Air Traffic Services (Nats) said the pilot had sought guidance during the flight from air traffic control, something he was not necessarily required to do given his flight path, but he was not in direct contact with air traffic controllers at the time of the crash.

What we know is that at some point Barnes had indicated to Nats operators at Swanage near Heathrow that he wished to divert to the London heliport in Battersea, just two and a half miles to the west of Vauxhall bridge, because of the weather.

Nats told the controllers at Battersea to expect his arrival. "The heliport never gained contact with the helicopter," it said in a statement.

With the crash site so close to one of the busiest intersections of rush hour central London, it was a "miracle", said Metropolitan police commander Neil Basu, that the casualty numbers were not "many, many times worse".

The crashing helicopter missed a busy building site, Vauxhall bus station and dozens of residential blocks beside The Tower. Though it fell on to Nine Elms Lane, a busy commuter spur, one witness said the crash came just as traffic lights had turned red, which mean there was were fewer cars in danger than if the traffic had been moving.

Investigators are likely to examine testimony from witnesses that the helicopter had been spinning wildly before it crashed – one commuter described "large cyclical loops" as the craft fell – in case it contains clues to the cause of the accident.

Helicopter spins usually indicate a damaged tail rotor, said Williamson, though it is not clear if a fault arose before impact or if Barnes's tail struck the crane, tipping it into a spin.

The AAIB team will also attempt to piece together the path the pilot took. One witness, a construction worker who declined to give his name, told the Guardian that helicopters frequently flew in the area, but it was the first time he had seen a craft fly to the south of the Tower instead of along the river to the north.

Vanessa Ten Hoedt, 32, was just about to feed her four-week-old baby Matthew and was looking out of her eighth-floor window at Kestral House overlooking The Tower when she saw a section of the crane sheer off into Nine Elms Lane.

"Then we heard an explosion and were so happy that it didn't hit any cars, but then we saw the black smoke and we realised it wasn't just a collapsing crane."

She said the entire block shook and she assumed it was a bomb. "There was debris and pieces of helicopter on the ground. It was quite stressful with a four-week-old. We got dressed and left the building straight away."

Nic Walker was in bed when he was awoken by the sound of the helicopter, seconds before the impact. He pulled on some clothes and ran outside to help, only to find a stretch of the street on fire.

"There were two people injured on my side of the fire. I think one was a motorcyclist. One seemed to have an eye or brow injury," he said.

He could see a damaged black Volkswagen Golf, but not its driver. "I ran down with a guy to check the car ... but we couldn't get close enough to see the back. I took a guy down to check the car was empty but had to pull back from fire and explosions.

Alex Melville, a sales manager at a nearby motorbike shop, who rushed into the street in the seconds after the impact, said: "The helicopter was lying on the ground engulfed in flames. It was shocking, just horrible. We knew that whoever was in their was dead.

"There were a lot of people who had rushed to the street to see what had happened. The flames were burning fiercely, and all you could smell were the a acrid fumes.

"There was a woman in a Golf and a man in a Range Rover who were driving in the street when the helicopter hit. The black Golf caught alight and was burning pretty badly, but luckily the woman had managed to get out.

"After a few seconds we heard another explosion, that was the Golf car being engulfed in flames. It was just a massive fireball."

The first of the emergency services arrived within four minutes of the helicopter striking the crane; within minutes, the scene was attended by six fire engines and other specialist vehicles, seven ambulance crews and a hazardous response team and 60 police officers.

The pilot of the helicopter died instantly, along with another person who appeared to have been a passerby, said Pauline Cranmer of London ambulance service.

One person was helped from a burning car by fire service officers and 13 people received minor injuries, ranging from burns, cuts and bruises to a broken leg.

As the initial shock of the experience began to wear off, lorry drivers Watts and Robinson were able to joke about how the latter had sprinted "like Usain Bolt" to get away from the impact.

"You come to work on a normal Wednesday morning and you don't expect this," said Watts. "If I hadn't stopped to talk to the security guard, I would have been in the truck and I've been told the crane hit it. I think I'll buy a lottery ticket today."